INTENTIONS HAVE BEEN FAITHFULLY FOLLOWED BY ALL THOSE WHO HAVE BEEN TEMPORARILY VESTED WITH RESPONSIBILITY FOR THE OPERATION OF HIS FOUNDATION.

ACCORDINGLY, WE BELIEVE AN EXEMPTION FROM THE "EXCESS BUSINESS HOLDINGS" PROVISIONS SHOULD BE PROVIDED FOR CERTAIN FOUNDATIONS; THOSE WHERE NO FEDERAL INCOME OR ESTATE TAX DEDUCTION WAS CLAIMED FOR THE VALUE OF THE STOCK ORIGINALLY TRANSFERRED. THE DETAILS OF THIS PROPOSAL ARE SET FORTH IN MY PREPARED STATEMENT SUBMITTED FOR THE RECORD.

MR. CHAIRMAN, WE ARE NOT UNMINDFUL THAT CONGRESS MAY WISH TO ADDRESS THE ISSUE OF "EXCESS BUSINESS HOLDINGS" ON A BROADER BASIS. WE BELIEVE IT WOULD BE APPROPRIATE TO CONSIDER MODIFICATIONS TO ENSURE MAXIMUM CHARITABLE DISTRIBUTIONS AND INDEPENDENT OPERATION OF FOUNDATIONS AND THE BUSINESSES THEY OWN. WE SUPPORT BROADER PUBLIC DISTRIBUTION OF INFORMATION ABOUT FOUNDATIONS CHARITABLE WORK. WE EXPECT TO BE FULLY ACCOUNTABLE FOR OUR WORK ON BEHALF OF THE FOUNDATION. WE ARE PREPARED TO WORK WITH THE APPROPRIATE COMMITTEE STAFFS AND THE TREASURY DEPARTMENT TO DEVELOP THE NECESSARY RULES AND SAFEGUARDS.

THE ALTMAN FOUNDATION IS FACED WITH A RAPIDLY APPROACHING DEADLINE UNDER SECTION 4943. UNLESS A SET OF GENERAL RULES CAN BE DEVISED AND APPROVED SOON, THE FOUNDATION WILL BE FORCED TO DISPOSE OF ABOUT HALF OF ITS HOLDINGS IN B. ALTMAN & CO. IN LESS THAN ONE YEAR. THIS COULD RESULT IN A "FIRE SALE" OF THE B. ALTMAN & CO. STOCK NOW HELD BY THE FOUNDATION.

ACCORDINGLY, WE URGE CONGRESS TO REVISE SECTION 4943(c)(4)(B)(i) TO PERMIT THOSE PRIVATE FOUNDATIONS WHICH, TOGETHER WITH ALL DISQUALIFIED PERSONS, HELD MORE THAN 95% OF THE VOTING STOCK OF A BUSINESS ENTERPRISE ON MAY 26, 1969, TO BE PERMITTED TO RETAIN THEIR EXCESS BUSINESS HOLDINGS UNTIL MAY 25, 1989. THIS WOULD PROVIDE THE ALTMAN FOUNDATION AS WELL AS OTHER FOUNDATIONS WITH AN ADDITIONAL FIVE YEARS IN WHICH TO DISPOSE OF THEIR EXCESS BUSINESS HOLDINGS. THIS PROPOSED CHANGE WOULD ESTABLISH A CONSISTENT RULE FOR DETERMINING WHETHER A PRIVATE FOUNDATION SHOULD HAVE 15 OR 20 YEARS TO DISPOSE OF PART OF ITS HOLDINGS UNDER SECTION 4943 (c)(4)(B)(i) OR (ii).

IN THE ALTERNATIVE, WE BELIEVE CONGRESS SHOULD APPROVE AN ACROSS-THE-BOARD STATUTORY 5 YEAR EXTENSION OF TIME FOR ALL PRIVATE FOUNDATIONS REQUIRED TO DISPOSE OF EXCESS BUSINESS

HOLDINGS.

WE ASK THIS SUBCOMMITTEE AND THE FULL COMMITTEE ON FINANCE TO REVISE SECTION 4943 OF THE CODE AS QUICKLY AS POSSIBLE. THANK YOU FOR THIS OPPORTUNITY TO APPEAR BEFORE THE

SUBCOMMITTEE TODAY.

Mr. MORRIS. Very briefly, I can summarize by telling you that the Altman Foundation was created by Benjamin Altman in 1913 prior to the imposition of the first Federal, State and gift tax provision, and it was created with no tax benefits or contributions to the foundation. The foundation is located in New York City and carries out its charitable purposes through grants to cultural, educational, and religious organizations, and these have been, in the main, to social welfare organizations, hospitals, universities, libraries, youth groups and neighborhood associations.

For more than three generations, the foundation has given more than $24 million to nearly a thousand different charitable organizations operating in New York. Grants from the foundation have been as small as $5 and as large as $100,000. In 1982, we distributed our entire net income of over $790,000. The foundation is operated by a board of six trustees and it incurs minimal operating expenses. The total expenses of the foundation amount to about $70,000 per year, including approximately $20,000 connected with the preparation of its annual financial statements filed with the Internal Revenue Service, and approximately another $20,000, or just under $20,000, to the Federal excise tax on net investment ine.

In the past decade we have distributed funds in excess of net investment income in 6 separate years. The primary gift to the foundation was made by Benjamin Altman, as I indicated, prior to the enactment of the first Federal, State and gift tax provisions. Since 1969, the foundation has engaged in serious discussions with potential purchasers of B. Altman and Co. and the efforts have been unsuccessful. B. Altman and Co. is a retail department store located in New York City. Much like the Broadmoor Hotel, it is a historic institution in the city of New York.

We strongly support the call for a modification and/or repeal of section 4943. We also strongly support your legislation, S. 1464. We would, of course, like it modified slightly to include an entity similar to the Altman Foundation. And, in fact, the Committee on Finance during the Ninety-seventh Congress approved a series of provisions as amendments to H.R. 4577. One of those provisions not only included the El Pomar Foundation, another included the Altman Foundation. And it is that legislation that we seek as well. In our full statement for the record there are some technical modifications that we also would request the committee to consider as well.

We are faced with a very rapidly approaching deadline under section 4943. We must divest of the stock of B. Altman and Co. unless existing law is changed on or before May 25, 1984. And, therefore, the relief that we request would be needed promptly. Thank you very much, Mr. Chairman, for this opportunity to briefly outline our situation. And I would be happy to answer any questions that you might have.

Senator ARMSTRONG. Thank you, Mr. Morris. Senator Long, did you have any observations or statement or any questions for the panel?

Senator LONG. No questions, Mr. Chairman. I have, down through the years, supported at least one of these institutions.

Senator ARMSTRONG. I appreciate that. Needless to say, I am grateful for that observation.

Gentlemen, because I am really very familiar with the issue, and I think other members of the Finance Committee are also familiar, in general, with the Altman issue, and in detail at least with the issues in the El Pomar case, since the committee recommended and the Senate did adopt this proposal in 1982 and on at least one previous occasion. I don't think there is really any need to draw out the discussion today. But I would ask each of you one question and then ask your cooperation in one task. My question is this, for Mr. Hybl and for Mr. Morris if he cares to respond: In the discussion this morning, the Treasury Secretary representative pointed out that the original legislation in 1969 was occasioned by some substantial abuses that were then occurring among foundations. He referred specifically-and I am now quoting-to self-dealing between foundations and donors, undue delay in the delivery of benefits to charity, extensive foundation involvement in businesses resulting in noncharitable use of charitable assets, family use of foundations to control corporate and other property, and financial transactions unrelated to charitable functions. My belief in what I assured the Treasury Department was that none of those elements are present in the case of El Pomar. And I just wanted to inquire if there is any reason I should be uncomfortable with that statement. I am not aware that there has ever been any allegations of abuses of this type. Is that correct?

Mr. HYBL. Mr. Chairman, you are correct, there have been no violations. There are certainly no instances that I am aware of in my association with the foundation. I will submit for the record a certified letter from Arthur Young and Co. indicating, since 1969, there have been no violations involved with this particular act.

Senator ARMSTRONG. I appreciate that. [The letter follows:]

ARTHUR YOUNG

April 13, 1983

Mr. William J. Hybl

El Pomar Foundation

P. O. Box 64

Colorado Springs, Colorado 80901

ARTHUR YOUNG & COMPANY 1670 BROADWAY, SUITE 2500 DENVER, COLORADO 80202

(303) 831-9500 TELEX 45-4423

Dear Mr. Hybl:

Our firm has been the accountants and auditors for the El Pomar Foundation (Foundation) for many years before the enactment of P.L. 91-172 (1969 Tax Reform Act) and for all years since that Act. Under the 1969 Tax Reform Act, the Foundation is classified as a Private Foundation and as such is subject to Sections 4940 through 4946 of the Internal Revenue Code.

Very truly yours,

ARTHUR YOUNG & COMPANY

Harold Aftern

Harold D. Hein

HDH/1kd

We have assisted the Foundation with the annual preparation of the various returns and reports to be filed, such as Forms 990-AR and 990-PF, for all the years since the 1969 Tax Reform Act provisions were enacted. To the best of Our knowledge and belief, the Foundation has fully complied with the provisions of Section 4940 through 4946 for the years 1969 through 1982 and has not paid or been required to pay any of the taxes or so-called "penalty payments" provided in these Sections other than, of course, the Excise Tax based on investment income provided in Section 4940.